Earthquake Insurance: Mandated Disclosure and Homeowner Response in California

Abstract

Earthquake insurance can reduce potentially disastrous economic losses to households and is therefore a prime method of mitigating against the worst economic effects of damaging earthquakes. The decision to purchase such insurance is a special case in the general study of individual response to uncertainty in the environment. An understanding of this decision process elucidates the ways in which environmental information becomes translated into behavior change. Although California legislation has mandated the disclosure of the availability of earthquake insurance to all residential property owners since 1984, less than half of California homeowners have earthquake insurance. This paper reports on the results of a survey of 3,500 owner-occupiers in Contra Costa, Santa Clara, Los Angeles, and San Bernardino Counties conducted in the summer of 1989. The survey was undertaken to discover the locational concentrations of insurance policy-holders and the socioeconomic, demographic, and attitudinal characteristics that distinguish insured from noninsured homeowners. The results show that insurance purchase is not spatially related to geophysical risk and that the purchase of insurance is not systematically related to income, equity in the home, age of the head of household, or other socioeconomic characteristics. Instead, perceived risk is the primary factor associated with insurance purchase.

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